How Traders Can Use Twitter to Anticipate Bitcoin Price Moves, Volume

Bitcoin price has been testing the $10,000 mark this month as online metrics like the number of tweets and Google searches mentioning Bitcoin show a two year-high.

Most notably, social media metrics like the number of tweets mentioning a particular cryptocurrency, the number of comments or posts in a cryptocurrency dedicated subreddit, the number of daily search volume for a specific crypto theme, or even the mentions of "Lambos" on Reddit.

Analyzing tweets and Bitcoin price from 2017 to 2019Looking at the daily number of tweets mentioning Bitcoin since 2017, there is a clear spike during the 2017 bull-run.

Following that spike, throughout 2018 and 2019 the average number of tweets reduced substantially, although there was a small spike on June 26 during the peak of Bitcoin's smaller bull run in 2019.Number of daily tweets from January 2017-December 2019.This medium-term trend between the number of tweets and Bitcoin price may suggest that both variables are related or that one can be a predictor of the other.

As expected, throughout 2017 the correlation between price and the number of tweets is the highest across the years at 0.86.A correlation of 1 means that Bitcoin and the number of tweets are fully positively correlated, while - 1 means they are fully inversely correlated.

This relationship is much lower in 2019 even though Bitcoin showed a great gain in price between March and June.Correlation between Bitcoin price and the number of daily tweets.

This relationship holds for the other years but the increase in volume is below 1% in both 2018 and 2019.By analyzing the future power of tweets to predict next day's volume, we find similar significant results with similar magnitude, meaning, when today's number of tweets increase by 1%, Bitcoin's volume increases the same day by 2.5% in 2017, 0.64% in 2018 and by 0.72% in 2019.Do tweets accurately predict Bitcoin returns?The holy grail of any financial market would be the ability to predict future returns.

When trying to establish a relationship between the number of tweets and future Bitcoin returns, we find no significant results, hence we cannot establish the same conclusion as we did regarding volume.

It would be useful to reconfirm whether or not the start of 2020 shares similar characteristics to the bullish periods in 2017 or 2019.Bitcoin daily price from Jan.1, 2020-Feb.13, 2020.When it comes to the average number of tweets mentioning Bitcoin in January and February this year, there has been an increase from the average observed during 2019 - from a daily average of 18,972 tweets in 2019 to an average of 22,070 tweets in the start of 2020.

The number of daily tweets from Jan.1, 2020-Feb.13, 2020.Following this trend, we find that the relationship established between the number of tweets and volume is also observable in the first month and half of 2020.